WASHINGTON – The Federal Reserve is still firmly in wait-and-see mode.
The Fed left its key interest rate unchanged again Wednesday and gave no hint it plans to lower it soon as President Donald Trump’s sweeping tariffs raise the risks of both another inflation spike and recession. But officials signaled they're growing increasingly concerned about both hazards.
The decision leaves the Fed’s benchmark short-term rate at a range of 4.25% to 4.5% for a third straight meeting. The central bank lowered the rate by a percentage point late last year as a pandemic-related price surge eased but has paused since as it gauges the impact of Trump’s hefty duties.
"We are comfortable with our policy stance," Powell said at a May 7 press conference. "We think right now the appropriate thing to do is to wait and see how things evolve. There's so much uncertainty."
In a statement after a two-day meeting, the Fed gave a nod to the economy’s first-quarter contraction, noting tariff-related imports “have affected the data.” But it added “economic activity has continued to expand at a solid pace” and the job market remains “solid” while inflation “remains somewhat elevated.” That doesn’t sound like a Fed poised to lower rates in the short term.
At the same time, the Fed suggested that both of the risks posed by the import fees have ratcheted higher. “Uncertainty about the economic outlook has increased further,” the Fed said. “The (Fed) is attentive to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
Normally, the Fed raises rates or keeps them high to fight inflation and lowers them to jolt a wobbly economy. But Trump’s import taxes augur both sharply higher prices and weak growth or recession as households reduce spending, leaving officials torn between their two mandates.
"I don't think we can say which way this will shake out," Powell said.
Here's a recap of coverage from May 7:
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Stocks close higher after Fed announcement
Stocks closed higher after the Fed's announcement.
The blue-chip Dow Jones Industrial Average gained 0.7%, or 284.97 points, to close at 41,113.97, while the broad S&P 500 index was up 24.37 points, 0.4%, at 5,631.28. The Nasdaq composite staged a comeback in the late afternoon, tacking on 0.3% or 48.50 points, to 17,738.16.
The benchmark 10-year Treasury note was down about four basis points near 4.27%.
– Andrea Riquier, Medora Lee
Will the Fed cut rates at all this year?
When asked if the Fed should cut rates at all in 2025, Powell said it’s “going to depend.”
“We are going to need to see how this evolves. There are cases in which it would be appropriate for us to cut rates this year. There are cases in which it wouldn't. And we just don’t know until we know more about how this is going to settle out and what the economic implications are for employment and for inflation,” he said.
White House does not foresee inflation re-accelerating
White House economic adviser Stephen Miran, asked on Fox News about the Federal Reserve's concerns about the U.S. inflation rate rising again, said President Donald Trump's administration does not believe that is going to happen.
"We did not believe that, and the president's been very clear with his views about interest rates and monetary policy," Miran said in an interview on Fox News' "The Story with Martha MacCallum" show.
Miran was responding to a question about Fed Chair Jerome Powell's comments on inflation concerns.
– Reuters
Trump has yet to ask Powell for a meeting, Fed chair says
During Wednesday’s press conference, Powell was asked why he has not met with President Donald Trump, who recently passed his first 100 days in office. Previous presidents – including Barack Obama, George W. Bush and Bill Clinton – met with Fed chairs, and Powell met with Trump during his first term.
Powell said he has never asked for a meeting with any president, and never will. He added it has always been the president who requests a meeting.
“I don't think it's up to a Fed chair to seek a meeting with the president. Although maybe some have done so, I've never done so,” Powell said. “I can't imagine myself doing that. I think it's always comes the other way, a president wants to meet with you, but that hasn't happened.”
– Bailey Schulz
What is stagflation?
Typically, when the economy is weak, inflation is low because there's less consumer demand and plenty of unused products and services. High inflation is more likely when the economy is strong and surging consumer demand is driving up prices.
Stagflation offers a worst-of-all-possible worlds scenario of weak growth and sharply rising prices. That poses a dilemma for the Federal Reserve: It can raise interest rates to fight inflation, but that will further hobble a feeble economy.
– Eric Lagatta, Marina Pitofsky and Andrea Riquier
Fed keeping an eye on US talks with trade partners
Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer will meet China's top economic official in Switzerland this week, with discussions set to center around de-escalation.
Powell said the Trump administration seems to be entering a “new phase” in its tariff plans that includes talks with trade partners.
“I think it's going to be very important how that shakes out,” Powell said. “But we simply have to wait and see how it works out. It certainly could change the picture, and we are mindful of not trying to make conclusive judgments about what will happen at a time when the facts are changing.”
– Bailey Schulz
Powell says the economy is 'still in solid shape'
Powell acknowledged that consumer sentiment has taken a hit from Trump’s tariffs, but said the Fed hasn’t seen “big economic effects” in the data yet.
People “are worried now about inflation. They are worried about a shock from the tariffs," Powell said. But "that shock hasn’t hit yet. So we are going to be looking at not just the sentiment data, but also the real economic data as we assess what it is we should do.”
He added that despite consumer concerns, unemployment is still low, wages are in a good shape and job creation is “fine.”
“The economy itself is still in solid shape,” Powell said.
– Bailey Schulz
Powell says Trump’s comments don’t affect the Fed’s decisions
Powell told reporters that President Donald Trump calling for rate cuts doesn’t affect the Fed’s job “at all.”
“We are always going to do the same thing, which is, we are going to use our tools to foster maximum employment and price stability for the benefit of the American people,” Powell said. “We are always going to consider only the economic data, the outlook, the balance of risks, and that's it. That's all we are going to consider. So it really doesn't affect either our job or the way we do it.”
– Bailey Schulz
Powell says economy is 'resilient' and committee feels ‘comfortable’ waiting
Powell said the Federal Open Market Committee still feels comfortable waiting to see how tariffs play out before adjusting rates during his press conference after the decision Wednesday.
“We’re in the right place to wait and see how things evolve,” Powell said. “We don’t feel like we need to be in a hurry. We feel like it’s appropriate to be patient.”
He affirmed, however, that the committee can move quickly if unemployment or inflation changes in a way that calls for a rapid response.
“The economy is – has been – resilient. It's doing fairly well,” Powell said. “The costs of waiting to see further are fairly low.”
– Rachel Barber
What does the Fed decision mean for mortgage rates?
Rates for home loans track longer bonds than the short-term bank rates set by the Fed, so there's likely to be little reaction to today's decision in the mortgage market. Selma Hepp, chief economist for real estate data provider Cotality, previously known as CoreLogic, expects mortgage rates to stay elevated in the near term, keeping the 30-year fixed-rate mortgage closer to 7% than 6%, she told USA TODAY.
Last week, the popular product averaged 6.76% across the United States. Rates at that level are just high enough to make purchasing a home a tough decision for many people, Hepp noted.
‒ Andrea Riquier
What will it take for the Fed to cut rates?
Although inflation is already elevated and expected to move higher, the Fed will need evidence of a material downturn in the job market before it cuts rates, Bankrate Chief Financial Analyst Greg McBride said in a note Wednesday.
Today’s announcement shows the Fed will keep waiting to see how unemployment and inflation are affected in the coming months, making for “an interesting summer,” McBride said.
“It is tempting to romanticize the idea of lower interest rates, particularly from a borrowing perspective. But the reason for lower interest rates is very important,” he said. “We want interest rates to come down because inflation pressures are easing, not because the economy is weakening. Unfortunately, if rates do come down in the coming months, it is more likely because the economy weakened.”
‒ Rachel Barber
How will the Fed address a conflict between its missions of low inflation and high employment?
Fed Chair Jerome Powell effectively has said policymakers would address the most formidable challenge first. But he also suggested that, all things equal, the Fed will prioritize inflation to ensure a one-time price rise from tariffs doesn’t affect consumer and business inflation expectations and ripple through the economy.
‒ Paul Davidson
What does the Fed's decision mean for Americans?
Consumers will continue to benefit from lower borrowing costs for credit cards, some mortgages, and auto and other loans compared to a year ago. But there won’t be a further drop in rates in the short term.
‒ Paul Davidson
Is the economy in a recession right now?
The economy shrank at an annual rate of 0.3% in the first quarter but the U.S. almost certainly isn’t in recession. Informally, a recession is considered two straight of quarters of falling gross domestic product.
But technically, a recession is “a significant decline in economic activity” that lasts more than a few months. Consumer spending grew a solid 1.8% early in the year, down from 4% late last year. And business investment jumped 22.5%, in part because shoppers and firms stocked up ahead of tariffs.
Meanwhile U.S. employers added a healthy 177,000 jobs in April and an average 155,000 the first three months.
‒ Paul Davidson
What’s next for tariffs?
The Trump administration earlier this year imposed a baseline tariff of 10% for most trading partners and 145% tariffs on Chinese imports.
Treasury Secretary Scott Bessent on May 6 suggested a tariff deal with trading partners could be announced as early as this week, as previously reported by USA TODAY.
"I would be surprised if we don't have more than 80 or 90% of those (trade deals) wrapped up by the end of the year," Bessent said during a hearing with the House subcommittee responsible for turning the Treasury Department's budget proposal into law.
Meanwhile, Trump has threatened additional tariffs on pharmaceuticals and foreign-produced movies. Federal Reserve Chair Jerome Powell has warned tariffs could have adverse effects on the economy.
"Unemployment is likely to go up as the economy slows, in all likelihood, and inflation is likely to go up as tariffs find their way and some part of those tariffs come to be paid by the public," Powell said on April 16.
– Bailey Schulz
Is the US heading for a recession?
Nearly 4 in 10 forecasters say there’s at least a 50% chance of a recession this year, according to an April survey by the National Association of Business Economics.
Forecasters lowered their forecasts for economic growth in 2025 and 2025 following the April 2 tariff announcement, when Trump announced sweeping 10% tariffs on imports from all countries.
Prior to the announcement, 8% of NABE survey respondents placed the odds of a 2025 recession at 50% or higher.
– Bailey Schulz
Advice for consumers, no matter the rate
In times of economic uncertainty, Bankrate Chief Financial Analyst Greg McBride suggests the best way for consumers to protect their finances is to focus on building up their emergency savings and tackle debt with high interest rates.
“This builds a buffer in the event of an income disruption or unanticipated expenses and insulates you from costly borrowing or untimely withdrawals from retirement accounts,” McBride said in the May 5 note.
– Rachel Barber
Can Trump fire Powell?
Trump hasn't been pleased with the Fed's wait-and-see approach to rate cuts, and in April said Powell's termination "cannot come fast enough."
“If I want him out, he’ll be out of there real fast. Believe me,” Trump said April 17 while taking questions from reporters in the Oval Office, adding that he thought Powell was “always too late, a little slow.”
Legally, Trump would have trouble firing the Fed chair, as previously reported by USA TODAY.
“Our independence is a matter of law. Congress has, in our statute, we're not removable except for cause," Powell said on April 16. "Congress could change that law. But I don't think there's any danger of that. Fed independence has pretty broad support across both political parties and both sides of the Hill."
Trump has since said he had no intention of firing Powell.
Powell was appointed as chair during the first Trump administration and reappointed in 2022 under the Biden administration. His term is set to end May 2026.
– Bailey Schulz
What inflation reports are watched by the Fed?
Economists measure inflation through several price indexes including the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) index. The Fed prefers to look at the PCE index, noting on its website that it “accounts for how Americans are spending their money at a given time and more quickly adapts to changes in spending patterns.”
The PCE index’s latest data from March reported it rose 2.3% from a year earlier. The Fed says it adjusts its policy to guide the inflation rate toward its 2% year-over-year target.
– Rachel Barber
What is the current state of the US economy?
GDP was down at an annual rate of 0.3% in the first three months of the year, according to a report from the Commerce Department. It was the U.S. economy's worst quarter in three years.
But the economy shrank because imports surged as companies raced to make purchases before Trump’s tariffs kicked in. The value of imports is traditionally subtracted from the economy’s total GDP because they’re produced in other countries.
Goldman Sachs expects that effect to reverse in the second quarter.
Meanwhile, the annual inflation rate softened in March and consumer spending was up a solid 0.7%. And U.S. employers added 177,000 jobs in April, beating economists' forecasts.
On the other hand, inflation is still above the Fed’s 2% target, and trade policy uncertainty has taken a hit to consumer confidence.
– Bailey Schulz, Paul Davidson
What is the Fed interest rate?
The Federal Reserve defines the federal funds rate as the interest rate charged by banks to borrow from each other overnight. The Federal Open Market Committee sets a target range for the rate.
It serves as a benchmark for other interest rates including for loans, credit cards, and mortgages.
A lower federal interest rate means borrowing costs less, generally incentivizing people and companies to take out loans, invest, or spend more, which can boost the economy. A higher federal interest rate means borrowing costs more, so people are likely to spend less. This can slow the economy but help curb inflation.
– Rachel Barber
When will the Fed cut interest rates again?
Opinions are mixed.
Goldman Sachs expects the Fed to start cutting rates in July and lower rates three times this year. Morgan Stanley doesn’t expect to see rate cuts until 2026 unless there is a recession this year.
The Fed in March estimated it would cut rates twice in 2025.
– Bailey Schulz, Paul Davidson
Interest rate predictions: When will interest rates go down?
As of Wednesday morning, there were roughly 2% odds the Fed will announce a rate cut in May, according to CME FedWatch, a tool that measures interest rate traders’ expectations. Most economists also don't expect the Fed to cut rates in May.
About 27% of traders say the Fed will hold rates steady at 4.25% to 4.5% after its July meeting, according to CME FedWatch. A little over half expect rates to fall a quarter percentage point.
– Bailey Schulz
Why is the Fed being so cautious about cutting rates?
Morgan Stanley estimates inflation will rise to about 3.7% this year, leading the Fed to hold off on cuts in the short term despite slowing growth. Then, as consumption and economic activity soften further, the firm predicts the 4.2% unemployment rate will climb to about 4.7% by spring 2026, prodding the central bank to act.
Besides tariffs, downturn risks are also rising because of Trump’s broad federal layoffs and deportations of hundreds of thousands of migrants who lack permanent legal status.
Goldman Sachs predicts the Fed will move sooner and more aggressively to reduce rates but “will want to see evidence” of a struggling labor market. Although consumer and business confidence has tumbled, that also happened as the Fed hiked rates in 2022 without undermining economic activity.
How is the stock market doing today?
Stocks opened higher Wednesday as investors awaited an announcement about interest rates from the Federal Reserve and digested news about a possible trade deal between the U.S. and China.
Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer are set to meet China's top economic official in Switzerland this week. It is the first confirmed meeting between the countries since Trump announced tariffs as high as 145% on China and Beijing retaliated by hiking tariffs on U.S. goods to 125%.
Discussions will center around de-escalation, an initial step seen toward trade talks.
– Medora Lee, Andrea Riquier, Bailey Schulz
What is the Fed meeting schedule for 2025?
Upcoming Fed meetings include:
-
June 17-18
-
July 29-30
-
Sept. 16-17
-
Oct. 28-29
-
Dec. 9-10
– Bailey Schulz
What time is the Fed meeting today?
The Federal Reserve holds eight regularly scheduled meetings each year to determine monetary policy.
This month's meeting takes place May 6 to May 7, and the Fed will announce its interest rate decision May 7 at 2 p.m. ET, followed by a press conference with Fed Chair Jerome Powell.
– Bailey Schulz
How are tariffs influencing the Fed’s decisions?
The Fed has held back from cutting rates so far in 2025 as Trump’s tariffs spur economic uncertainty and increase the risk of inflation.
“Everyone, including the Fed, is bracing for higher prices,” Bankrate Chief Financial Analyst Greg McBride said in a May 5 note.
There are concerns that Trump’s tariffs could lead to stagflation, a period of high inflation and slow economic growth. In that scenario, Powell in April said the Fed would prioritize whichever goal (stable prices or maximum employment) is furthest away.
– Bailey Schulz, Paul Davidson
Is President Trump pressuring the Fed to lower rates?
Trump has repeatedly called on Fed Chair Jerome Powell to lower interest rates.
On April 21, Trump urged “preemptive” interest rate cuts, calling Powell “a major loser” and pushing him to lower interest rates "NOW.”
The following day, Trump told reporters he had “no intention of firing” Powell, but “I would like to see him being a little more active in terms of his idea to lower interest rates. This is a perfect time to lower interest rates.”
In recent months, Powell has said the Fed is independent and Trump can't fire him. “Not permitted under the law,” he said after the November Fed meeting.
– Bailey Schulz
What is the current Fed interest rate?
The benchmark federal funds rate has been 4.25% to 4.5% since December, when the Fed announced a quarter percentage point drop. The Fed left rates unchanged during its January and March meetings.
– Bailey Schulz
Why did the Fed stop cutting interest rates?
The Federal Reserve began to hike interest rates in 2022 to combat rapid inflation, going from nearly zero in early 2022 to a two-decade high of 5.25% to 5.5% in July 2023. As inflation slowed, the Federal Reserve began to lower rates.
The Fed in December signaled rate cuts would move at a slower pace amid stubborn inflation. In March, the Fed held its prediction of two rate cuts in 2025, down from four envisioned in September.
– Bailey Schulz
This article originally appeared on USA TODAY: Fed meeting news: Interest rates unchanged amid 'uncertainty'